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Corporate Finance : Record Year For M&a Crawling To Finish

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December 01, 2007

MERGERS & ACQUISITIONS

The year 2007 already has set an all-time record for the value of worldwide mergers and acquisitions, thanks to the growing influence of private equity funds and attractive financing opportunities earlier this year. However, deteriorating credit conditions and investor uncertainty brought the pace of announced M&A; to a crawl in the third quarter.

Frenetic M&A; activity extended into the first few weeks of July but then suddenly faltered, according to Thomson Financial. September’s total of $192 billion in announced deals was the lowest monthly total since August 2005 and a 66% decline from just two months earlier.

Private equity firms were a major factor in M&A; deals in the first nine months of this year, with $858 billion of announced deals, or 23.7% of the overall volume, according to Thomson Financial. That was an increase of 71.3% from the same period in 2006.

The impact of the credit crunch on private equity was evidenced by the disappearance of new leveraged buyout announcements and the difficult conditions for financing previously announced buyouts, Thomson Financial says. As a result, financial sponsors accounted for just 13% of announced deals in August and September, the lowest monthly levels of the year to date.

Takeovers of firms based in the United States accounted for 38% of worldwide M&A; volume in the first nine months of 2007, down from 41% of the total in the same period of 2006. Meanwhile, Europe’s share of announced deals increased to 40% in the first three quarters of this year from 37% in the same period a year earlier.

Cross-border mergers accounted for a record 45.5% of worldwide M&A; activity for the first nine months of 2007, with ongoing consolidations in the global financial services, materials and energy-and-power sectors. Global M&A; activity increased 50% in the first three quarters of 2007 over the same period last year to reach $3.6 trillion, which was more than the full-year total for 2006.

Activity in the technology sector led in the number of deals in the first nine months of this year, with more than 4,100 announced transactions.

Goldman Sachs and Morgan Stanley were the leading financial advisers on worldwide M&A; in the first three quarters, with more than $1 trillion each in announced deals, according to Thomson Financial. Both investment banks advised on the $99.4 billion acquisition of ABN AMRO by a consortium led by Royal Bank of Scotland, which was the largest transaction announced so far this year.

There were 292 deals bigger than $1 billion each announced in the Americas in the first three quarters of 2007, up from 200 deals of more than $1 billion in the same period of last year. The vast majority of this year’s large transactions were announced in the first half of 2007, a sign that the market’s appetite for big deals has diminished among subprime concerns and less-favorable financing conditions, according to Thomson Financial.

European M&A; activity during the third quarter declined 45% from the previous quarter, as the market suffered from the effects of the credit crunch and the subprime mortgage crisis. European private equity activity in the third quarter declined 73% from the previous quarter to its lowest point since the second quarter of 2004.

The largest announced deal in Europe during the third quarter was UK-based Rio Tinto’s $43 billion offer for Alcan, which ranks as the largest-ever cross-border offer for a company based in Canada.

As Global Finance went to press, BHP Billiton confirmed it made an all-stock takeover offer for Rio Tinto that valued the company at $140 billion. Rio Tinto rejected the offer as inadequate.